Leaving the EU: Financial Services

Kirsty Blackman Excerpts

Thursday 3rd November 2016 Commons Chamber

[Joanna Cherry (Edinburgh South West) (SNP)]

I rise to speak about the impact of leaving the European Union on the financial sector and the legal profession, with particular reference to my constituency.

An estimated 7,000 of my constituents are employed in the financial services sector. Across the whole city of Edinburgh, there are 34,800 people employed in financial services. Edinburgh is the UK’s second-largest financial centre. It is a major European centre for asset management and asset servicing, and home to the global headquarters of the Royal Bank of Scotland and the UK headquarters of the Green Investment Bank. Edinburgh is the UK’s largest financial capital centre after London by both gross value added and employment. The financial sector in Edinburgh also supports many other jobs in the service sector. Some of the best coffee shops, sandwich shops and restaurants are in my constituency, supplying constituents who work in the financial and legal sectors.

Very worryingly, earlier this week an independent report for the Scottish Parliament’s Economy Committee revealed that Edinburgh’s reliance on financial services is greater than that in any other city in Europe. Therefore, Edinburgh is at most risk of being affected if we lose the protection hon. Members have been speaking about. I pause to pay tribute to those hon. Members who secured this debate.

There are serious concerns about the potential for lost jobs and business if there is a loss of full access to the single market. Leading economists gave evidence to members of the Scottish Parliament on Tuesday on the impact that Brexit and leaving the single market would have on Scotland’s economy. Across Scotland, the financial sector directly and indirectly employs almost 200,000 people, 20,000 of whom are European Union workers. It contributes £8 billion to the economy of Scotland. In fact, Edinburgh’s economy is more reliant on financial services than London’s economy, or indeed any other city’s economy in the UK. As I said earlier, if we look at Edinburgh’s share of financial services, we see that it is markedly ahead of most large European cities.

[Kirsty Blackman (Aberdeen North) (SNP)]

Is my hon. and learned Friend concerned that the Scottish asset management sector is bigger than that in Frankfurt and in Paris put together? We stand to lose out significantly.

[Joanna Cherry]

Yes, I am concerned about that. Edinburgh’s reliance on financial services is 23.8%, compared with 18.9% in London, 17.3% in Brussels and 17% in Amsterdam. By comparison, Glasgow’s financial services sector is worth about 12.4% to its economy.

This is not fearmongering. Paris and Frankfurt are already angling for some of the jobs that may leave London and Edinburgh if we leave the single market. I attended a briefing last week at which the Irish ambassador spoke. He pointed out that while Britain leaving the European Union poses some problems for the Republic of Ireland, it will also provide some fantastic opportunities for Dublin to attract jobs that we really need in our financial sectors across the UK. In Edinburgh, we really want to hang on to those jobs.

I am happy to say that a lot of people in my constituency are employed in legal and accounting services, which is what I used to do before I came to this place. More than 3,000 of my constituents are employed in the legal services sector. Across Edinburgh, that figure for the legal and accounting sector is closer to 10,000. The Law Society of Scotland has its headquarters in my constituency, and the Faculty of Advocates, of which I am non-practising member, has its headquarters in the neighbouring constituency of Edinburgh East. A lot of lawyers and other people who work in law firms live in my constituency and are worried about the impact of Brexit on legal services. There are many aspects of EU law that have particular relevance to the legal system and professions, including the directive on the mutual recognition of diplomas, the lawyers establishment directive and the lawyers cross-border provision of services directive.

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[Kirsty Blackman (Aberdeen North) (SNP)]

Members may be surprised to discover that I am not going to focus on what happens outside the City of London. It is important to talk about the City of London, and not just the areas outside it. What happens in the City of London benefits the whole of the UK’s economy. Whether or not Scotland is independent by the time that Brexit happens, it will still be really important for us that there is a strong financial services structure in the UK.

[Robert Neill]

Will the hon. Lady give way?

[Kirsty Blackman]

Not right now; I do not have much time.

I have a couple of points to make, starting with the issue of capital flight and passporting, which has been widely mentioned. As the hon. Member for Leicester West (Liz Kendall) said, passporting is important because banks have to make these decisions now. They have to make them today. They cannot wait for the Government to mess about while they come up with deals on Brexit. The structural decisions have to be made now, because it takes a number of months and years for these things to happen. Banks do not have the luxury of being able to wait until two years down the line when the Brexit negotiations are concluded to discover whether or not there is a cliff-edge at that stage. They need to make those decisions now. When we hear that the Government are not going to give a running commentary, it means that banks have to take those decisions now, and it is disadvantaging the whole of the UK as a result.

I understand that it is difficult for the Government to provide certainty. They do not yet have certainty even on what language the negotiations will be conducted in, let alone anything else about them. It is unlikely that we will reach a position where we have certainty by the end of the two-year period. That is why organisations such as the London Market Group are suggesting that what the Government need to do as a matter of urgency is to agree transitional arrangements. It represents insurers, who generate over 20% of the City of London’s total income. What it says they need is financial regulatory certainty and transitional arrangements for five years post-Brexit in order not to severely disadvantage the insurance industry. Five years post-Brexit is a very long time, and the Government have not given them any certainty at this point in time.

Clearing is the other really important issue that I want to talk about. The London Clearing House is a huge success story for the City of London, and it has become very important. Clearing is the process through which risk in the financial markets is managed. It catalyses growth by helping to manage that risk, and it is central to the UK’s delivery of the G20 post-crisis legislative framework. Our financial markets are less risky and better regulated as a result of having so much of the clearing house function based in the UK.

There are conversations about euro-denominated currencies moving from London, but we will lose not just euro-denominated currencies. The London Stock Exchange Group and the London Clearing House work in 17 currencies, and the only reason the London Clearing House has such a large market share and is so successful is its access to all those currencies. If euro-denominated clearing is moved from London to New York—and let us not kid ourselves that it will move anywhere else—we, the United Kingdom and the whole of Europe, will lose out. As a matter of urgency, the UK Government need to secure agreement from the European countries that euro-denominated clearing will not be removed from London. The clearing house function supports 100,000 jobs in the United Kingdom. It is not true that, as the Chancellor said recently,

“in terms of…jobs and value…it is a relatively small part of the total.”—[Official Report, 25 October 2016; Vol. 626, c. 149.]

A huge amount of the market, and City of London services, rely on the clearing house function, and the Government must prioritise it.